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Crude Oil

Nigerian Oil: A Blessing or Curse?



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The Nigerian economic crisis is getting deeper and there seem to be no succinct plans in sight to curb the continuous degradation of the economy. Nigeria is one of the largest crude oil-producing nations and 90 percent of its foreign exchange earnings are generated from crude oil sales.

In June 2008, crude oil peaked at $147.42 a barrel, the highest in the history of the world. Nigerian foreign reserve likewise grew from $45 billion to $63 billion in September 2008 before the global economic recession hit the embattled nation in November 2008, when the oil price dropped to $32.40 a barrel.

The problems of Nigeria’s economy were further compounded when U.S oil production increased, and therefore stopped importation from Nigeria in 2014. In December 2014, India (who had replaced the U.S) also reduced its importation by 38 percent to 5.3 million barrels — from 13.7 million in October and 12.4 million in November. China did not import a single barrel for the said month after initially reducing its importation by 50.3 percent.

There were several effects on the economy of Nigeria (home to over 170 million people) for two reasons: firstly, Nigeria only had contractual agreements with a few countries and as such sell on “spot”. Two, the country overly depends on crude oil to finance capital expenditures and with crude oil price trading at $48.08 a barrel from last year’s peak of $107.64 a barrel, the question is how would Nigeria avert her economic rout with falling oil prices?

Since the drop in global oil prices, the Central Bank of Nigeria (CBN) has adjusted its exchange rate five times, even after the introduction of tight forex controls in February. The latest was on Thursday, July 23rd, ahead of Monetary Policy Committee (MPC) meeting. The currency exchange rate is presently N197 to the United States dollar and CBN promised it would be sold to customers through the interbank at N198. It’s a different story at the parallel market where Naira is being exchanged at N244 to a U.S dollar.

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Data was partly gotten from the National Bureau of Statistics (NBS) Economic Review and Outlook Report.

In the past months, over 20 states have reportedly failed to pay their worker’s salaries, a situation termed a disgrace by President Muhammadu Buhari who was forced to devise a bailout of $3.4 billion to offset the deficit of the affected states — in an effort to curtail further civil actions from civil servants.

Excessive focus on crude oil has created a one-way foreign revenue channel, that any slight fluctuation in the global oil price (beyond Nigeria’s control) impacts the entire nation.

Nigeria’s GDP rose to $594.3 billion for the first time in 2014 and became the biggest economy in the whole of Africa, according to a report from the National Bureau of Statistics (NBS).

The service sector contributed the most, 42.6 percent to the total GDP, while industry was 25.6 percent, agriculture and oil sectors made up 20.6 and 11.2 percent respectively.

The report shows that service is the fastest-growing sector followed by the industrial sector. The agricultural sector growth rate has been hindered by lack of finance and limited skilled labour — many preferring to work in the lucrative oil sector of the country.

The economy has been impeded, limited and contained by its lack of effective diversification strategy that could leverage its vast resources and manpower for growth. Excessive focus on crude oil has created a one-way foreign revenue channel, that any slight fluctuation in the global oil price (beyond Nigeria’s control) impacts the entire nation. It is obvious that Nigeria cannot continue to depend on oil for growth.

The NBS report has shown that oil growth was a mere 6.3 percent and contributed only 11.2 percent to the entire GDP —the lowest among the sectors. The truth is Nigeria is currently surviving on sectors with less attention, but one wonders why due diligence is not done to elevate those sectors in order to create a permanent solution to oil’s unpredictable nature?

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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Crude Oil

Brent Crude Oil Trading at $84.53 a Barrel



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The increase in Omicron variant cases has cast doubt on demand for crude oil in the near-term and trimmed gains recorded earlier in the week on Thursday during the Asian trading session.

The brent crude oil, against which Nigerian oil is priced, pulled back from $85.16 per barrel on Wednesday to $84.53 per barrel at 9:50 am Nigerian time on Thursday.

The uncertainty surrounding the highly contagious Omicron variant and its impact on fuel demand has shown by the U.S Energy Information Administration on Wednesday dragged on the global crude oil outlook.

The data released on Wednesday revealed that gasoline stockpiles rose by 8 million barrels last week, way higher than the 2.4 million barrel increase projected by experts. Suggesting that demand for the commodity is gradually waning in response to omicron.

“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya stated.

However, in a note to Investors King, Craig Erlam, a senior market analyst, UK & EMEA, OANDA, expected the impact of omicron to be short-lived. Libya’s inability to ramp up production after outage and OPEC plus continuous failure to meet production target are expected to support crude oil in the main term even with Kazakhstan expected to get back to pre-disruption levels in a few days.

“With omicron seen being less of a drag on growth and demand than feared. Combine this with short supply and there may be some room to run in the rally as restrictions are removed. Of course, Covid brings unpredictability and zero-covid policies of China and some others bring plenty of downside risk for prices,” he said.

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Unrest in Kazakhstan and Libya Shoots up Oil Prices



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The ongoing unrest in Kazakhstan and the supply outage in Libya have bolstered global oil prices on Thursday.

The deadly violence, across the tightly controlled former Soviet state, has been condemned by Russia, which sent paratroopers on Thursday into Kazakhstan to quell the unrest.

However, there were no indications that oil production in the country has been affected so far.

“The political situation in Kazakhstan is becoming increasingly tense.” German financial institution, Commerzbank said, “And this is a country that is currently producing 1.6 million barrels of oil per day.”

The Global benchmark Brent crude futures rose $1.78, or 2.2%, to $82.58 a barrel by 1445 GMT, the highest since late November. U.S. West Texas Intermediate (WTI) crude futures also gained $2.18, or 2.8%, to $80.03, the highest since mid-November.

However, Brent’s six-month backwardation stood at about $4 a barrel, its widest since late November.

Backwardation is a market structure where current prices trade at a premium to future prices. It is usually a sign of a bullish market.

In Libya, lack of maintenance and oilfields shutdowns has plunged the leading African oil producer’s output to 729,000 bpd.

According to Libya’s National Oil Corp on Thursday, production slumped from a high of more than 1.3 million bpd recorded in 2021.

The oil prices rallied despite a surge in United States fuel stocks last week.

The North American country’s crude oil stockpiles fell last week while gasoline inventories surged by more than 10 million barrels, the biggest weekly build since April 2020, as supplies backed up at refineries because of reduced fuel demand, Reuters noted.

OPEC+ on Tuesday agreed to further increase oil production by 400,000 bpd in February, as it has done each month since August.

Top oil exporter, Saudi Arabia however cut the official selling price for all grades of crude it sells to Asia in February by at least $1 a barrel.

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Nigerian Firms to Buy $3bn Oil Stakes in Shell Nigeria



The Royal Dutch Shell Company has revealed that five Nigerian oil and gas firms are preparing to submit bids for the company’s onshore oilfields.

The sale could generate up to $3 billion in revenue, sources working with Shell told Reuters.

Recall that the Anglo-Dutch company which owns stakes in 19 oil mining leases in Nigeria’s onshore oil and gas joint venture informed the federal government of plans to sell its stakes.

The company controls a 30% stake in the Shell Petroleum Development Company of Nigeria (SPDC). This is 25% lesser than the Nigerian National Petroleum Corporation (NNPC), which holds 55%. TotalEnergies (TTEF.PA) has 10% and ENI 5%.

The oil and gas industry, including banking sources, have said that Shell’s assets in the last quarter of 2021 were valued at $2 billion to $3 billion.

However, Shell has made it clear it is selling off its stakes as part of its drive to reduce carbon emissions.

The company has also struggled for years with spills in the Niger Delta due to pipeline theft and sabotage as well as operational issues, leading to costly repairs and high-profile lawsuits.

According to the sources speaking to Reuters, the stock sale has drawn interest from independent Nigerian oil and gas firms including Seplat Energy (SEPLAT.LG), Sahara Group, Famfa Oil, Troilus Investments Limited and Nigeria Delta Exploration and Production (NDEP).

No international oil companies, however, were expected to take part in the bidding process at this point. They may however be allowed to bid before the close of the process by Jan. 31, the sources noted.

The reality is that it remains unclear if potential bidders could raise sufficient funds as many international banks and investors have become wary about oil and gas assets in Nigeria due to concerns about environmental issues and corruption.

Some African and Asian banks, however, were still willing to finance fossil fuel operations in the region, they said.

The buyer of Shell’s assets, the sources say, will also need to show it can deal with future damage to the oil infrastructure which has ravaged Nigeria’s Delta in recent years.

Another possibility is that NNPC, as the majority stakeholder holding 55% of SPDC shares, could also choose to exercise its right to pre-empt any sale to a third company.

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